Riding On Momentum

As promised i will proceed to dissect the Technicals Side of STI and i will attach a link the the FA side written by a fellow investor.

STI has soar over 60% since the low and despite repeated calls of downside the downside has only been kept at 2200 thus far and not going further down. Shorts has built up quite substantially during the past 1 month and the rally in DJ set the stage for a further move up.

Now what do i expect to see from US side. I expect an under performance in the US banks while a outperformance in the US companies that derives most of their profit overseas due to the tremendous dollar weakness that is in place for the past 4 months.

How far does STI has to go?
From a FA side we are tremendously over-valued even more so then the 2007 bull market and for us to be fairly valued it would be approx 2050 region which is the convergence of both FA and TA any value above 2050 i would prefer to stay sidelines.

However stock market itself is driven by sentiment and the flow of money so if you ask me now do i think STI has further to go at the moment,i believe so however i would not chase because it is impossible for it to go above 2660 which is the 50% retracement from our high and our recent low. For those with holdings i recommend you clear out 70-100% of your holdings if we even see 2600 no matter you are short term,medium term or long term.(2660 is the MOST optimistic level that i see that we will hit this year and likely even for next year!!)

1 Important thing when dabbling in stocks is you are in it to make money,you do not need to catch all the moves you just need to isolate moves that you have a reasonable move to go for. I believe a lot of you have the urge to invest or chase right now and i believe if we do ever break 2425 and move to 2600 region this is the start of the bull market however a start does not mean that it will keep on going up or it won't have a drastic retracement,in the course of the next few months to 1 year it is still possible to get in at 1800 or even lower because the market is not driven by whether the economy is good or bad but rather it is driven on the EXPECTATIONS and expectations are mostly false dawn as seen in 1998 whereby STI recover from a low of 1500 to 2600 points and proceed on a 15 months drop back to 1500 points again.

I do not foresee a fast drop however we will see a major top in the next couple of months and proceed on a slow and long correction to the downside which could last from anything like 6 months to 15 months.

At 2400 we are at least 20% over-valued and we only have a 10% move to go for that's a risk/reward ratio of 2:1 and i guess you all know when the hype dies down it's all those that are very bullish after 2400 and did not exit.





2400 is a pretty critical resistance however based on the chart patterns and candlesticks in the weekly there is a high chance that it will proceed to break it this time. The uptrend line has still been intact though the momentum is in the negative region currently. As mentioned in my prior posts i believe there will be 1 last leg this year to bring us to the top which will not be breached for many months or years to come i am not sure if this will be the 1 because i think it is currently still too premature to occur as the amount of shorts are a lot but it has not reached overwhelming ratios yet. Hence the only advise i have are for those that have Unit Trusts or individual stocks it is still ok to hold onto them to offload if we ever see 2600 but i would not recommend getting into them right now to chase after the last leg.

The CIT news of a possible bankrupt today should put a cap on the risk appetite of the traders/investor today

Some good things to know about
http://www.myinvestmentanalysis.com/an-overpriced-market/
http://www.myinvestmentanalysis.com/road-to-recovery-the-consumer/
http://www.livemint.com/2009/07/12213639/Economy-goes-up-markets-go-do.html

Posted as of 12pm

As I write this article on time frames, I wish to speak a little bit about my experience as a trader. Throughout the years, I have made my fair share of mistakes. Those of you that trade/invest in the markets know it is just part of the game. It is a trial and error type career, like kids, we must touch the hot stove/oven, even when our parents told us not to. Once touched, we pray we learn our lesson and never do it again. I was no different as I began to learn how to trade. I would try something, find out what works, what does not. As I began to utilize the technicals of price, pattern and time I began to throw away the other technical indicators that were always talked about. For instance, stochastics, MACD, RSI and more. These I tried to use in my first years as a trader but my winning percentage was never more than 60%. Of course due to my discipline at the time, the losers would often outweigh the winners by 2-3x and we all know that math will not work. Over time, I learned to make sure I cut my losses, and as I learned a new breed of technicals, I began to let my winners max out on profits. One of the biggest things I learned was to trust price, pattern and time. Today I wish to speak a little bit about time and how important it can be in one respect.


As part of one of the fastest growing financial guidance and education firms out there, one of the biggest lessons we wish to express, is to use the Larger Time Frame Method. This method is exactly how my partners and I at InTheMoneyStocks.com were able to pinpoint within a week or two the top on the market recently. The SPY (a good gauge of the S&P 500) was trading for 2-3 weeks between $94-$96. During this time, President Obama, Treasury Secretary Geithner and the Federal Reserve Chairman Ben Bernanke all stated multiple times that green shoots were sprouting. The media was singing their praises, mutual funds and hedge funds were dumping hundreds of billions back into the market and a V-shaped bottom seemed to be in place. At heart we are contrarian thinkers and use psychology as part of our analysis techniques. Seeing this pumping in the media put us on high alert. We started looking at the daily SPY chart. Sure, it looked over bought but let's face it, a chart of anything can remain that way for days, weeks, months or even years. After analyzing the daily and seeing mixed signals and signs, we decided to do something most investors or traders lack the common sense to do. I went to the next bigger time frame. This is where we made an amazing discovery.


This is one of the secrets which may seem like common sense but for some reason so few people are willing to do it. Whenever you find it hard to read a chart but feel something is overbought or oversold on a certain chart or when people seem far too bullish or bearish, always go to the next bigger time frame. If you are right on the move coming, it should be showing and confirm on that time frame. The chart below shows a great example of the confusion that was in the markets. The daily chart shows the markets off the March lows by 40%. However, at the same time a great bullish consolidation pattern is forming which many beginner/amateur traders were thinking meant the markets were going to go higher.


What did we do? We first got worried based off the psychological indicators. With the President, Federal Reserve and Treasury all pumping the markets, the media blasted it to everyone. That was what worried us. Too many bullish people. With that we looked at the daily chart below.










After analyzing the daily chart, it was not clear if we were right to suspect a drop coming in the markets off the SPY $94-$96 level. At that point we went to the next biggest time frame, the weekly. We grinned with excitement after going over the weekly chart. Not only was the 50ma coming into play as major resistance but we discovered two major trend lines, one which started back in early 2007 and the other from mid 2008. Both lines crossed the current price on the SPY at $96. This was a major find and began to reassure us that a fall back down was on the horizon. See the chart below.







After isolating all 3 major resistance levels, which the current markets were hammering against, we began to put all the pieces of the puzzle together. Society was far too bullish, the markets were 40% off their recent lows and the weekly chart was showing hardcore signs of a major pullback. Before we really wanted to short this market and make the call to our premium subscribers, we decided to confirm even more by going to the monthly chart (the next bigger time frame). If we were right on this drop, that should confirm the weekly.


We looked over the monthly chart. All of a sudden, that same smile crept to our lips. A major resistance level had just been tagged at $96 on the SPY on the monthly chart dating all the way back to late 2002. It just so happened to be the pivot high of a W bottom. That high in December of 2002 was at $96.05. The high on the SPY in 2009 in June was $96.11. This confirmed our view that the markets should see a sizable drop. See the chart below.

Credits to Inthemoneystocks.com
P.S This is not written by me but it is really something i believe everyone should know about.